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if the tax caused the price of a 2-liter (66.6 ounce) bottle to rise from $1.50 to $2.50, the price elasticity of demand, calculated using the midpoint formula (see the hint for details) is

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Final answer:

The price elasticity of demand, calculated using the midpoint formula, is 0.

Step-by-step explanation:

The price elasticity of demand can be calculated using the midpoint formula. This formula takes into account the percentage change in quantity demanded and the percentage change in price. The formula is:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

Using the given information, we can calculate the percentage change in quantity demanded and the percentage change in price:

Percentage change in quantity demanded = ((New quantity demanded - Old quantity demanded) / ((New quantity demanded + Old quantity demanded) / 2)) * 100

Percentage change in price = ((New price - Old price) / ((New price + Old price) / 2)) * 100

Let's calculate the percentage changes:

Percentage change in quantity demanded = ((66.6 - 66.6) / ((66.6 + 66.6) / 2)) * 100 = 0%

Percentage change in price = (($2.50 - $1.50) / (($2.50 + $1.50) / 2)) * 100 = 40%

Now we can substitute these values into the elasticity formula:

Elasticity = (0% / 40%) = 0

Therefore, the price elasticity of demand, calculated using the midpoint formula, is 0.

User Aniruddha Sarkar
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Final answer:

Price elasticity of demand is calculated using the midpoint formula, which compares the percentage change in quantity demanded to the percentage change in price. Without specific quantity information, we cannot complete the calculation for your scenario. Generally, a high elasticity suggests that lowering the price could increase revenue, while a low elasticity suggests that raising the price might do so.

Step-by-step explanation:

To calculate the price elasticity of demand using the midpoint formula, we need to know both the percentage change in price and the percentage change in quantity demanded. The midpoint formula is given by:

Elasticity = (Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2)

Where Q1 and Q2 are the initial and new quantities, and P1 and P2 are the initial and new prices, respectively. In this case, P1 is $1.50, P2 is $2.50, while we are not given specific quantities (Q1 and Q2), we can infer them based on price changes if we assume demand is linear.

First, we calculate the percentage changes:

Percentage change in price = (P2 - P1) / ((P2 + P1) / 2) * 100

This becomes:

((2.50 - 1.50) / ((2.50 + 1.50) / 2)) * 100 = (1 / 2) * 100 = 50%

Since we do not have specific quantities, we cannot directly calculate the percentage change in quantity. However, we need this information to use the midpoint formula for elasticity. You may need either to provide more information or look at other factors to estimate the elasticity in such cases.

In general, when advising a company about pricing, if the elasticity is high (greater than 1), a price decrease should lead to a sufficient increase in quantity sold to offset the lower price. If the elasticity is low (less than 1), an increase in price could lead to higher revenues even if fewer units are sold.

User Alan Z
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